Markets in Everything: Delta Airlines More Efficiently Bumps Passengers

Steven Horwitz

Delta Airlines has recently changed the way they handle overbooked flights.  If your flight is overbooked, you are told of the situation when you check-in, either online or at the airport kiosk, and are asked if you are willing to give up your seat and, if so, to enter a dollar amount corresponding to what it would take to get you to give it up.  Not only does this provide the gate agents earlier information about likely volunteers so they can start rebooking, it lets Delta bump folks with the lowest opportunity cost of their time, likely saving the airline money and more efficiently allocating airline seats.

A very clever addition to the system first devised by Julian Simon decades ago.

Be sure to read the comments at that link, especially the Delta representative's further explanation.

(HT:  My father.)

Comments

[Mario Rizzo]

Delightful.

[Jerry O'Driscoll]

Some years ago, the WSJ did a piece on Delta's overall pricing model for airfares. It was run by an economist who claimed Hayek as his inspiration.

[toxicafunk]

Doesn't that provides an incentive for companies to overbook?

[Rafe Champion]

Probably not, they don't want to inconvenience their passengers, just give them options.

[Sherman Unkefer]

A good strategy to customer care. And I guess favorable to passenger and company.

[Thinker]

Based on the further explanation from the Delta customer service rep. in the comments, it seems like this is more like a rule for queuing rather than a strict bidding procedure. Those with the lowest bids get called first to switch flights rather than the old way of those who are quickest to the counter.

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